By Ma Mingjie

Research Report Vol.18 No.6, 2016

Innovation policies are government incentives designed for all links on the innovation chain. China’s enterprise innovation survey, completed in 2015¹, supplies the first-hand materials conducive to improving its innovation policies to be more scientific and accurate. Survey results show innovation policies are “discriminatory” to a certain degree, and have different effects in enterprises of different sizes, in different industries and regions. The difference in effects results from the features of different enterprises, industries and regions, as well as different costs of the enterprises to enjoy such policies.

I. Positive Effects of Innovation Policies amid Problems

1. Enterprises have positive comments on policy effects

The innovation survey includes assessment of nine innovation policies among nearly 650,000 enterprises. Seven policies are acknowledged as helpful by more than half of those enterprises. They are the policies for intellectual property rights (IPR) protection, attracting and cultivating talents, financial support, industrial support, calculating research and development (R&D) cost, reducing or eliminating income tax of high and new-tech enterprises, and accelerating depreciation of special equipment.

The vast majority of policies fail to realize their due effects. Among all nine policies, no more than 17% of the respondents give them high rating, while for those policies which are rated as ineffective, the proportions of respondents saying so are more than 31%. As for the policy of calculating R&D cost, less than 15% believe it will help advance innovation; nearly 8% think it hardly promotes innovation; and 41% think it has no effect on enterprise innovation.

Preferential policies for purchasing R&D equipment and transferring technology are yet to achieve good effects. Up to 60% and 52% of enterprises believe policies for exempting import tax on technological R&D equipment and for accelerating depreciation of special equipment have little effect on innovation. Up to 56% of the entrepreneurs think there are little effects from policies for exempting value-added tax and income tax on technology transfer and R&D.

2. Weak effects are due to high policy threshold, low popularity and cumbersome procedures

Among them, high policy threshold and low popularity of policies account for more than 75% of the whole picture.

The main factor that weakens policy effects is that enterprises are not eligible for such policies, which is believed by about 77% of the entrepreneurs. The most complained reason of high threshold is income tax policy for new and high-tech enterprises, while the least complained is talent policy. Notably, the smaller enterprises are, the more likely they are crowded out by the high threshold. It is the small-sized enterprises that suffer the most. The proportion of small businesses unable to enjoy such policies is nearly 11 percentage points higher than that of large enterprises.

The low popularity of policies is the second largest factor. Even the most well-known policy of calculating R&D cost is still unknown by nearly 13% of enterprises. Similarly, the smaller enterprises are, the fewer policies they know. Regionally, the eastern, central, northeastern and western areas have diminishing knowledge of policies. The less developed areas are, the fewer policies they know.

The third largest factor is complicated procedures of applying to enjoy such policies. In contrast, the bigger enterprises are, the more they complain about cumbersome procedures, which may be because large and medium-sized enterprises can enjoy more policies and may meet more problems in their application.

3. Huge differences exist in how local governments implement policies

Policy publicity, implementation and procedures reflect the capability of local governments in serving enterprises and implementing related policies. Comparatively speaking, enterprises in east China complain more about high threshold for enjoying policies rather than policy publicity, implementation and procedure. Enterprises in central and west China are the opposite, with problems prominent especially in west China. More enterprises in northeast China complain about policies than those in other areas, and they have less grumbling about policy implementation than the central and western areas. It is clear that governments in the central and western areas should work hard to improve the effects of innovation policies.

II. Limited Range of Effects Determined by Features of Innovation Policies

Surveys suggest that small businesses and less developed areas are where innovation policies fail to play a part, due to unreasonable policy design, impeded policy transmission as well as goals and functions of innovation policies. As innovation policies aim to encourage innovation, their effects will be affected by the quantity of enterprises and intensity of innovation. The current fact that enterprises in China lack innovation greatly limits the effect range of innovation policies. There is such a dilemma that policies aiming to encourage innovation are restricted by lack of innovation.

1. Enterprises and industries with active R&D are greatly affected by innovation policies

Surveys prove that innovation policies have a more positive impact on industries with active R&D. For example, in contrast to low-tech industries like the construction sector, policies for calculating R&D cost, income tax of high-tech and new enterprises and protecting intellectual property rights have more impact on information technology service, scientific research and technical service, and even manufacturing. Besides, innovation policies are to reduce the innovation cost of enterprises, but not to stimulate those unwilling to innovate. According to the surveyed entrepreneurs, it is enterprises themselves who decide whether to innovate.

2. Innovation policies can only affect a few enterprises

Enterprises in China are now more willing to innovate, but the number is quite small. Only 40% of enterprises in the survey carried out innovation, with manufacturing enterprises taking up a relatively high proportion of only 48%. With the small number of enterprises that engage in innovation, policies have limited impacts, and therefore only a minority of enterprises can benefit from innovation policies.

3. Innovation policies are more helpful to large enterprises

With regard to the nine innovation policies in the survey, the larger enterprises are, the more effects such policies have on them. Except high threshold of the policies, that small businesses are not very active in innovation is the most important factor. Small businesses are supposed to be the source of innovation. But from the results of the survey, although small enterprises account for a large part in the total number of innovation enterprises, they are not active enough, i.e. the proportion of enterprises with innovation activities is low. The smaller enterprises are, the less active they are in innovating. The same is also true in treating talents. The smaller enterprises are, the less importance they attach to innovation and talents. ...

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